Check Clearing

It has long been illegal to “float” or post-date a check by writing it in an amount exceeding your current bank balance, even if you expected a pending deposit to cover it by the time it reached the bank. However, check processing practices have been changing in recent years and, since October 2004, your payment check will now clear the bank even faster—due to a federal law known as “Check 21,” the Check Clearing for the 21st Century Act.

This new law increases efficiency by making it easier for banks to transfer an image of your check electronically instead of physically transferring the paper check (this is known as check truncation). It allows (but does not require) your bank to create a “substitute check” on paper from the image, for situations where a paper check is needed as proof of payment or the receiving bank does not accept electronic checks. This substitute check contains all the information from the front and back of the original check and is considered a legal equivalent of the original.

As a convenience, some financial institutions also provide check images with your statement or on their website that may not meet all the legal requirements for substitute checks. Incidentally, it is legal for your bank to destroy the actual checks you write, which they may do right away or after a period of time. Note that Check 21 does not directly address how quickly a bank must make funds you deposit by check available to you, although federal law already places a maximum time limit on clearance of deposited checks.

For your own protection:

Always be sure you have enough money in your account to cover any checks you write.

Review your statement and notify the bank or credit union if you discover any errors.

If a problem arises from a substitute check and you lose money as a result, the law provides a special procedure for claiming a refund.